We are exactly one week into the first tax filing season under the new rules of the Tax Cuts and Jobs Act and I’ve already heard or read more than a hundred complaints from individual taxpayers about their federal income tax results. All but one of my clients so far are frustrated with the amount they owe or the amount of their refund. (The one who has not complained is not is a student who gets all taxes withheld returned to him). While this is anecdotal experience and is not an accurate population sampling, it still catches my attention as unlike anything I’ve seen in more than three decades of tax practice.
The main point of this blog post is simply to point out that the public response we are seeing is unlike anything else in out lifetime, including the public response to the major changes brought by the 1986 tax law. In that year the the top income tax rate was slashed from 70% to 28% but many working class people paid higher taxes. Yet this was pre-internet for most working class people so our only records of public reaction came from newspapers. I was moderator of the nation’s largest online bulletin board system for financial planners at that time at financial-planning.com. It was certainly a different world then but don’t recall any public discussion about taxpayer reactions like this that stood out that year .
What’s going on? Why are so many people expressing their anger about the new tax law now that they are filing their first tax return under the new rules? Earlier published reports said that only about 1 in 10 taxpayers paid more tax in 2018 under the new law but these early indications by tax filers might indicate that the number adversely affected is higher. Now some reports say that 1/3 of working class tax filers did not benefit from the tax change. That published ratio could grow worse by the end of tax filing season. It is also possible that public opinion about tax policy is unrelated to actual tax payment data.
I wonder if this public reaction is a perception based on adjusted wage withholding amounts where taxpayers paid less through withholding last year and simply do not recognize this now. Possibly the angry emotions expressed are pure political expression without basis in data. Or possibly, as the most bizarre consideration, the forecasts published by government and third party forecasters were wrong. We recognize that public opinion can be different than supported factual data. There are politically-charged times so anything is possible.
On the opposite side of my observations, one tax practitioner from the Midwest wrote in an online discussion that she saw none of this anger and that none of her clients owed more tax. This made wonder if the anger is more if a coastal issue. We believe that taxpayers living in areas with expensive real estate are more likely to face higher taxes under this law.
At this early stage in the tax filing system it seems clear that large numbers of working class Americans are saying that the new tax law is a flop for them. I suspect that if this expression of public dissatisfaction continues, it will have political consequences in future national tax policy.